French services sector contracts further in January, PMI shows

PARIS (Reuters) - France's services sector shrank further in January as businesses faced weak demand and political uncertainty, according to a closely-watched business survey by S&P Global published on Friday.

The HCOB Flash Services PMI Business Activity Index declined to 48.9 from 49.3 in December, below analysts' expectations for a reading of 49.3, and below the 50.0 threshold that indicates growth.

The broader French private sector experienced a slight improvement, with the Composite PMI Output Index climbing to 48.3 from 47.5, beating the forecast of 47.7 while the manufacturing activity index rose to 45.3 from 41.9, surpassing forecasts of 42.3.

"France's economy disappoints at the start of 2025... It is primarily the political crisis that is economically paralysing the country," said Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank.

"The next budget vote will decide not only the fate of the (PM) Bayrou government but also the economic stability of the country," he added.

There was a drop in business confidence in January, with companies judging the outlook for the next 12 months to be broadly neutral, compared with slight optimism in the previous month.

Surveyed businesses also recorded the fastest pace of job cutting since October 2020.

France's INSEE official statistics agency reported on Thursday a fall in French business confidence in January.

France is set to see weak but steady economic growth through the first half of 2025 as a political drama over the 2025 budget weighs on consumers and businesses, INSEE said last month.

(Reporting by Dominique Vidalon; Editing by Toby Chopra)